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#1771867 - 01/03/13 02:19 PM Are funds held for repairs considered escrow?
vettries Offline
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Joined: Feb 2012
Posts: 71
Cincinnati, OH
I have come across an account that was opened in a mortgage borrowers name while I was looking at check holds. The entire amount in this checking account was held. After investigating, I discovered that this account was opened by the bank (not the borrower) and funded with money the seller gave to the borrower to make needed repairs. Is this considered an escrow account? There are notes in the file that the lender will require affidavits and invoices for the repairs before funds are disbursed. The HUD1 lists these funds as going to the borrower and the bank.

If this is an escrow account do all the RESPA requirements for escrows apply?
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#1771878 - 01/03/13 02:31 PM Re: Are funds held for repairs considered escrow? vettries
ComplianceNerd Offline
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No, this is merely an account where "funds are held in escrow". I know it sounds the same but it's not and it can be quite confusing initially. It sounds like your lender is doing what is required in a case like this. This escrow account starts off with a lump sum and is gradually decreased by funding construction costs or repair costs.

The escrow accounts you're thinking of would be where the customer paid into it monthly with their regular payment and this money would build up to eventually pay property taxes, insurace and other possible thing (ex: HOA dues, etc.)
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#1771890 - 01/03/13 02:42 PM Re: Are funds held for repairs considered escrow? vettries
vettries Offline
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Joined: Feb 2012
Posts: 71
Cincinnati, OH
I guess my next question is a deposit question. How should this account be titled? Right now it is titled in the borrowers' names but they have no control over the account.
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#1771913 - 01/03/13 03:04 PM Re: Are funds held for repairs considered escrow? vettries
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
with money the seller gave to the borrower

There are notes in the file that the lender will require affidavits and invoices for the repairs before funds are disbursed.

Right now it is titled in the borrowers' names but they have no control over the account.


There should have been a "completion escrow" agreement between the bank and the borrower outlining how and when funds are to be disbursed. If no agreement exists then IMO the funds belong to the borrower and they can do whatever they want with them.
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#1771924 - 01/03/13 03:12 PM Re: Are funds held for repairs considered escrow? vettries
vettries Offline
Member
Joined: Feb 2012
Posts: 71
Cincinnati, OH
This situation made me uneasy. At first glance it looked like we had a CC violation. Then I went to look for something in the loan file giving us control of these funds. There is no "completion escrow" agreement in the file. The only things that eludes to this money is the sales contract where the seller agrees to give the buyer money for repairs. But that is a contract between buyer and seller; there is no agreement between the bank and the borrower in regards to these funds.

Thank you both.
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"The light at the end of the tunnel might be you. Bring it!" Steven Tyler

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#1771949 - 01/03/13 03:32 PM Re: Are funds held for repairs considered escrow? vettries
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
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Bloomington, IN
there is no agreement between the bank and the borrower in regards to these funds.

Then I would have to opine the bank has no legal authority to control the funds and that you most likely do have Reg CC issues for holding the funds without a formal agreement to do so.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1771966 - 01/03/13 04:10 PM Re: Are funds held for repairs considered escrow? vettries
ComplianceNerd Offline
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Joined: Nov 2011
Posts: 378
Texas ...
I see what you're saying Dan.

There isn't even a Loan Agreement in the file?
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